Wall Street returned Monday opening in the green after a terrible week of heavy volume selling. Buyers stepped up after a positive reading from the ISM Manufacturing rose more than expected. Again, stocks rose again only to meet sellers sending stocks lower. By the end of the day stocks whipsawed higher and volume ended lower. A low volume bounce and as we head into the FOMC meeting Wednesday we may very well see this type of action continue. This market remains in a correction and we will continue to exercise caution.
While we are in a correction it is difficult whether or not to forecast if we will go lower or turn higher. After last week’s debacle it appears the market would like to continue moving lower. At any rate, today marked day 1 of an attempted rally and if today’s low isn’t taken out we’ll be looking for a follow-through day. Even more important we need leadership from quality growth stocks. Last week we saw these leading stocks get hammered. Not typical behavior of a healthy market, even during a correction we should be seeing more than a handful of these stocks hold up. Until we get in a new uptrend, the long side will take a backseat.
Even the short side is a tough call a this point. Our nice setups aren’t just there yet and we’ll need more time to see our “nice” short setups where we can grab better than 10% declines. There are 50dma breakdowns where we can take advantage of, but remember these stocks do have support at their 200dma. We like to see stocks breaking down after long runs and with very little support.
The FOMC meeting on Wednesday will be highly scrutinized. We’ll sit back and enjoy the banter and hunt down the opportunities which give us the highest probability of grabbing gains.
Stay defensive.
